International hiring-out of labour
This section describes the application of double tax conventions (“DTCs”) in cases of international hiring-out of labour by non-resident companies (personnel leasing companies).
See also (German only): Annex to the Decree of the Austrian Ministry of Finance on the application of double taxation treaties to income subject to withholding taxes (10 March 2006, BMF-010221/0101-IV/4/2006 in its latest version); Decree of the Austrian Ministry of Finance on hiring-out of labour (12 June 2014, BMF-010221/0362-VI/8/2014).
According to Austrian domestic law (see sec. 98 para. 1 sub-para. 3 of the Income Tax Act (“EStG 1988”)), payments made to foreign personnel leasing companies for hiring-out of labour are subject to Austrian taxation if the hired-out employees carry out their work in Austria. Tax liability arises irrespective of the fact whether the personnel leasing company has a permanent establishment in Austria or not. The tax is collected by way of a withholding tax (see sec. 99 para. 1 sub-para. 5 of the EStG 1988), which also has the effect that it settles the tax liability of the hired-out employees since their taxable income is, in substance, covered by the remuneration for the hiring-out of labour (sec. 98 para. 1 sub-para. 4 last sentence of the EStG 1988).
Under Article 15 of the Austrian DTCs that follow the OECD Model Tax Convention the wages and salaries of the hired-out employees are taxable in the state of which the employer is a resident. In case of hiring-out of labour the hirer principally has to be regarded as the employer (comp. Austrian Administrative Supreme Court 22 May 2013, 2009/13/0031). As a result, in inbound situations Austria generally has a taxing right concerning the remuneration of the employees. Consequently, no relief at source or refund of tax can be claimed with regard to the wages and salaries.
Under the provisions of the article of the applicable DTC which corresponds to Article 7 of the OECD Model Tax Convention, Austria in contrast does not generally have a taxing right with respect to the profits the foreign personnel leasing company derives unless there is a permanent establishment in Austria. Therefore, the foreign personnel leasing company is in general entitled to claim relief from the tax withheld at source in respect of the remuneration for the hiring-out of labour. This may, however, only be granted if the taxation of the hired-out employees is ensured in Austria (i.e. if the employees are registered for wage tax purposes in Austria). This is because Article 7 of the OECD Model Tax Convention shall not be interpreted in such a way that Austria loses its right to tax the wages comprised in the fee for the hiring-out of labour.
The tax treaty relief for the personnel leasing company may be granted by way of a tax refund or direct tax relief at source.
2. Tax refund
Applications for tax refunds have to be filed in a web-based refund procedure. The correct application is “AKÜ” and has to be submitted to the Tax Office Bruck Eisenstadt Oberwart (Neusiedler Straße 46, 7000 Eisenstadt, Austria) or, as of January 1st, 2021, to the Tax Authority for Large Traders (PO Box 251, 1000 Vienna, Austria).
For a repayment of the total amount of taxes withheld the applicant has to provide evidence that all wages and salaries subject to tax in Austria were registered for wage tax purposes in Austria. Such evidence has to be provided in the web-form AKÜ and has to include the following information:
a) Information on the tax withheld for which a refund is claimed
- name, company name and address of the domestic client, i.e. the Austrian hirer (including VAT identification number)
- total number of employees during the application period
- gross service charge, amount of the tax withheld at source
- “ZKO” transaction number (i.e. the number received upon notification of an employee secondment to Austria)
b) Data regarding the employees subject to wage tax in Austria
- name and address of the employees who are subject to tax in Austria
- proof of their registration for taxation in Austria (including wage account information, wage tax remitted etc.)
3. Direct treaty relief at source
3.1. Intra-group hiring-out of employees
According to sec. 5 para. 1 sub-para. 4 of the Ordinance on DTC-relief, relief at source directly at the level of the Austrian hirer (i.e. exemption from the obligation to withhold tax at source) may only be granted to intra-group hiring-out of employees. In such cases, the regular forms for relief at source (ZS-QU1 or ZS-QU2) have to be used.
3.2. Commercial hiring-out of labour
In case of commercial hiring-out of labour and in case of intra-group hiring-out of workers, direct treaty relief at source of the personnel leasing fee may only be granted by notice (“exemption notice”). The prerequisite for such exemption is that there is no tax avoidance and that the foreign personnel leasing company or the Austrian hirer assumes all duties related to the status as an employer under domestic law (sec. 5 para. 3 of the Ordinance on DTC-Relief). This includes the registration of the hired-out employees for wage tax purposes, deducting wage tax, keeping wage accounts etc.
Applications for direct treaty relief based on an exemption notice have to be filed to the Tax Office Bruck Eisenstadt Oberwart (as of January 1st, 2021: Tax Authority for Large Traders) by way of a web-based procedure. For this purpose please take the following steps:
- Choose the web-form BEFBESCH, duly fill it in and submit it electronically (“advance notification”)
- Print out the advance notification as submitted (including the transaction number) and sign it
- Approach the tax authority of your state of residence and have the notification certified by them
- Send the advance notification (including the certification by your tax authority and any additional documents potentially required) by post to the responsible tax office/authority
Suspicion of tax avoidance is given especially when a comparison between the amount of the remuneration for the hiring-out of labour and the amount of wages paid shows an unusual profit flow abroad, or if there are indications that in the other country only a letterbox company exists. Furthermore, it has to be evaluated under a substance over form approach whether the typical functions of the employer are assumed by the Austrian hirer and not by the foreign personnel leasing company. In this case, the Austrian hirer would be considered the employer for wage tax purposes and the function of the foreign personnel leasing company would be reduced to a mere intermediary or agent (see Mn 924 of the Austrian wage tax regulations).
The relief at source has in any case to be made dependent on the fact that the registration for the taxation of wages is ensured. Consequently, the foreign personnel leasing company or the Austrian hirer has to register for wage taxation at the Tax Authority Austria (voluntary wage tax deduction based on sec. 47 of the Austrian Income Tax Act). The issuance of a tax registration number to the foreign personnel leasing company is an indication that the registration for taxation of the hired-out employees is ensured. The Austrian tax registration number is thus a prerequisite for the decision on the application of direct treaty relief and for the issuance of an exemption notice.
The personnel leasing company needs to provide the Austrian hirer with copies of the exemption notice in time so that the hirer can refrain from deducting withholding tax on the payments made to the personnel leasing company.